What are the top tips for expanding your portfolio?
If you are planning to grow your property portfolio, take these top tips on board
- Review your existing portfolio, finances and circumstances. Before you even consider buying an extra rental property or properties, make sure your current financial position means that expansion makes sound sense now and going forward. Consult your lender and/or your accountant, and make sure you have a clear understanding of your assets and liabilities, income and expenditure, cash available and cost of borrowing more.
- Look for up-and-coming areas. Follow the property press and browse the internet for clues about the next areas for investment potential. Look for things like government investment in infrastructure, special events and the introduction of major companies to particular areas. All of these things will help to push prices and desirability up and help rental rates.
- Consider diversifying. If your portfolio currently consists of one type of property in one area, think about adding a different property type or area into the mix, in order to spread your risk. For example, if you are mainly invested in luxury flats, consider going into student terraces, or vice versa.
- Stick to one area. An opposite strategy to tip 3 may suit smaller landlords, particularly if you manage the properties yourself: if you have a tried and tested formula, it could make sense to stick to one property type in one location.
- Look for properties with existing tenants. This means they have a proven payment record, there is no rental void, you don’t incur the cost or inconvenience of finding a tenant and as they are usually happy with the property you don’t have to spend a lot doing it up.
- Consider using a letting agent. While a property management agency will charge a fee, they can make a huge difference when it comes to finding reliable tradesmen, keeping properties rented and void periods to a minimum and looking after essentials, such as tenancy agreements. The cost of management fees can also be offset against tax.
- Consider buying at auction. Repossessed properties usually need work before they can be rented out, but the cost of this can be more than offset if you manage to pick up a property for a bargain price in the first place.
- Seek advice from a professional. Remember look for a bank open and not closed to new business, so a specialist buy-to-let mortgage adviser could help you find the most cost-effective way to buy your next property by arranging a capital-raising re-mortgage and/or finding the best new deal.
- Borrow to fund growth. Raising the funds to purchase by re-mortgaging an existing buy-to-let property means that you will not have to pay any income or Capital Gains Tax, which you would be liable for were you to sell a property in order to buy more.
- Avoid HMOs. It is currently very difficult to secure mortgage funding for properties which qualify as Houses in Multiple Occupation, so it is probably sensible for landlords, other than cash buyers, looking to expand their portfolios to avoid these at present.